SpaceX IPO and the Impact on Indices
Dear Compton Wealth Clients,
We are pleased to report financial markets delivered broadly positive returns through the first half of 2026. U.S. small-cap stocks were the strongest year-to-date performer across the indices shown. Their performance reflected a strong domestic economy and moderating core inflation. The NASDAQ 100 produced higher returns on the back of resilient corporate earnings and continued investment in artificial intelligence (AI). S&P500 Equal Weight Index has outperformed the traditional market cap weighted S&P 500 year-to-date. This suggests returns are not solely driven by a handful of the largest companies but by a wider range of businesses. Bonds generated a moderate return. Persistent inflation related to higher energy and food prices has limited the appreciation of bond prices even though yields might be up.
SpaceX IPO and Rule Changes to Indices
Like many of you, we’ve been closely tracking the historic IPO of SpaceX. SpaceX is one of the largest companies ever to enter the public markets, but only a small portion of the company can be bought and sold. The business is an elephant; the tradable stock is the doorway. The recent index rule changes are an attempt to recognize the elephant without asking index funds to squeeze through the doorway all at once.
While SpaceX had an enormous, headline-attracting IPO, only 4–5% of the shares are publicly traded. Most of the economic ownership—and an even larger share of the voting power—remained with Elon Musk, employees, and earlier investors. This has ramifications for indexes trying to include SpaceX, which led to rule changes. In understanding these rule changes, the question becomes not how large the company is in totality, but rather the investable size of the portion available.
How SpaceX Changes an Index—and How the Index Can Change SpaceX
Think of an index as a pie. Every company in the index owns a slice of that pie. When SpaceX enters the index, it receives a slice. That means the other companies must give up a very small part of theirs. At the same time, index funds must buy SpaceX shares because their rules tell them to. They are buying because SpaceX entered the index, not because they decided the price or business was attractive.
1. A Lot of Buying May Chase a Small Number of Shares
SpaceX may be worth more than $2 trillion, but only a small part of its shares may be available to buy. Suppose index funds need to buy $4 billion of SpaceX stock. That would be small compared with the value of the whole company. But it is large compared with the amount of stock actually available. Think of it this way: The whole company may be a very large pie, but only a few slices are sitting on the table for sale. When many buyers want those few slices, the price can rise quickly. A higher stock price does not always mean the business became more valuable. Sometimes it simply means many buyers were chasing a small number of shares.
2. SpaceX Takes a Small Slice from Other Companies
An index always adds up to 100%. If SpaceX receives a 0.6% slice, the other companies together must give up about 0.6%. Index funds may sell small amounts of their other holdings to make room. SpaceX does not create a larger pie. It receives part of a pie that was already fully divided.
3. SpaceX May Still Have Only a Small Effect on the Index
SpaceX may be a very large company, but the index may only count the shares that investors can actually buy. That can give SpaceX a much smaller index weight than its total company value might suggest.
The math is simple: SpaceX’s effect on the index equals its index weight multiplied by the change in its stock price.
If SpaceX has a 0.6% weight:
SpaceX may be one of the largest companies in the world, but its effect on the index depends on the size of the slice investors can actually buy—not the size of the whole pie.
Special Considerations for SpaceX
This was a unique IPO because shares held by insiders were not sold; rather, the existing ownership structure remained in place. Think of it like this: They had the whole pie mapped out in terms of who owns what. Typically, the pie stays the same size for an IPO, and through the IPO process, a portion of the already-cut pie becomes what they sell. However, in this case, SpaceX essentially made the pie bigger. In pizza terms, it went from a 16-inch pizza to an 18-inch pizza. They made the pizza artificially bigger without affecting the current owners.
Because of this change, there is a process called a lockup period. This means that employees and other early investors can’t sell their portion of the pizza, even if they want to, for a little while. This creates two interesting dynamics for the future. There is a rough schedule outlining when the holders owning this portion of the pizza have the right, but not the obligation, to sell their shares. This will increase the total supply of shares available for SpaceX, though we don’t know how much because we don’t know who is going to sell or in what quantity.
So, what happens when we increase the number of shares? The share price can go down because there is more supply. If more slices of pizza are available, the price per slice is likely not to remain the same because there is enough, or more, to go around. This influences the indexes that we talked about earlier. With a larger portion of the SpaceX pizza available, SpaceX’s weight or impact on the indexes can rise as well. The indexes don’t buy based on fundamentals or whether or not they like a business. If it passes the formula, it will be included, and depending on the formula, the impact will change. A portion of the formula is how much of the company will be investable.
So, simply put: a bigger SpaceX pie available means a bigger impact on the indexes. Though it should be noted, and investors should be cautioned, that the date employees and early investors can sell doesn’t line up perfectly with index rebalancing meetings. Typically, indexes are adjusted during quarterly or monthly reviews. This can lead to a lot of volatility in an already volatile company.
What Owners Should Remember
SpaceX entered the market as one of the world’s largest companies while having relatively few shares available for purchase. The index providers changed their rules because their old systems were built for normal IPOs, not a company as large as SpaceX. Their solution is simple: Let SpaceX enter the index quickly, but only give it credit for the shares investors can buy. That can create strong buying from index funds. It can also create sharp price swings when more shares become available. Neither event changes how many rockets SpaceX launches, how many Starlink customers it serves, or how much cash the business earns. Index funds can support the stock price for a period of time. Only the company’s future earnings can support its value over many years. A sensible owner should understand how the indexes affect the stock but should never confuse index buying with business value.Future IPO Pipeline
The SpaceX IPO is informative for the IPO pipeline, including OpenAI and Anthropic. While every company’s structure is different, if they follow in the same footsteps as SpaceX, you will see similar dynamics of supply and demand affecting stock prices, rather than business value. At a high level, business profitability and cash generation will ultimately determine the fates of these companies. OpenAI and Anthropic may become two of the largest IPOs ever, but the size and importance of the companies should not be confused with the attractiveness of the shares at any given price. When business documents go public, they will allow investors to move from the hype and noise of technology to business fundamentals.
